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87–971—PDF 2013

S. HRG. 113–278 

REPEALING THE SGR AND THE 

PATH FORWARD: A VIEW FROM CMS 

HEARING 

BEFORE THE

COMMITTEE ON FINANCE 

UNITED STATES SENATE 

ONE HUNDRED THIRTEENTH CONGRESS 

FIRST SESSION 

JULY 10, 2013 

( 

Printed for the use of the Committee on Finance 

COMMITTEE ON FINANCE 

MAX BAUCUS, Montana, Chairman 

JOHN D. ROCKEFELLER IV, West Virginia 

RON WYDEN, Oregon 

CHARLES E. SCHUMER, New York 

DEBBIE STABENOW, Michigan 

MARIA CANTWELL, Washington 

BILL NELSON, Florida 

ROBERT MENENDEZ, New Jersey 

THOMAS R. CARPER, Delaware 

BENJAMIN L. CARDIN, Maryland 

SHERROD BROWN, Ohio 

MICHAEL F. BENNET, Colorado 

ROBERT P. CASEY, Jr., Pennsylvania 

ORRIN G. HATCH, Utah 

CHUCK GRASSLEY, Iowa 

MIKE CRAPO, Idaho 

PAT ROBERTS, Kansas 

MICHAEL B. ENZI, Wyoming 

JOHN CORNYN, Texas 

JOHN THUNE, South Dakota 

RICHARD BURR, North Carolina 

JOHNNY ISAKSON, Georgia 

ROB PORTMAN, Ohio 

PATRICK J. TOOMEY, Pennsylvania 

AMBER COTTLE, Staff Director 

CHRIS CAMPBELL, Republican Staff Director 

(II) 

C O N T E N T S 

OPENING STATEMENTS 

Page 

Baucus, Hon. Max, a U.S. Senator from Montana, chairman, Committee 

on Finance ............................................................................................................ 1 

Hatch, Hon. Orrin G., a U.S. Senator from Utah ................................................. 3 

WITNESS 

Blum, Jonathan, Acting Principal Deputy Administrator and Director, Center 

for Medicare, Centers for Medicare and Medicaid Services, Baltimore, MD .. 4 

ALPHABETICAL LISTING AND APPENDIX MATERIAL 

Baucus, Hon. Max: 

Opening statement ........................................................................................... 1 

Prepared statement .......................................................................................... 27 

Blum, Jonathan: 

Testimony .......................................................................................................... 4 

Prepared statement .......................................................................................... 29 

Hatch, Hon. Orrin G.: 

Opening statement ........................................................................................... 3 

Prepared statement .......................................................................................... 44 

COMMUNICATION

American Medical Rehabilitation Providers Association ...................................... 47 

(III) 

(1) 

REPEALING THE SGR AND THE 

PATH FORWARD: A VIEW FROM CMS 

WEDNESDAY, JULY 10, 2013 

U.S. SENATE, COMMITTEE ON FINANCE, Washington, DC. 

The hearing was convened, pursuant to notice, at 10:05 a.m., in 

room SD–215, Dirksen Senate Office Building, Hon. Max Baucus 

(chairman of the committee) presiding. 

Present: Senators Wyden, Stabenow, Nelson, Cardin, Brown, 

Bennet, Casey, Hatch, Grassley, Crapo, Roberts, Enzi, Thune, 

Isakson, and Toomey. 

Also present: Democratic Staff: Mac Campbell, General Counsel; 

David Schwartz, Chief Health Counsel; and Karen Fisher, Professional Staff Member. Republican Staff: Dan Todd, Health Policy 

Advisor. 

OPENING STATEMENT OF HON. MAX BAUCUS, A U.S. SENATOR 

FROM MONTANA, CHAIRMAN, COMMITTEE ON FINANCE 

The CHAIRMAN. The hearing will come to order. 

Benjamin Franklin once said, ‘‘You may delay, but time will not, 

and lost time is never found again.’’ Those words ring true today 

as we work to repeal the Sustainable Growth Rate, otherwise 

known as SGR. This is a formula used to pay doctors who treat 

Medicare patients. It is antiquated, inefficient, and flawed. Over 

the past decade, the SGR has called for Medicare payment cuts to 

physicians that are unsound. 

Next year, physicians face a 25-percent cut under the formula. 

This deep cut would mean many seniors could lose access to their 

doctors. I refuse to let that happen. In each of the last 10 years, 

Congress has prevented these cuts to physicians by passing a 

patch, but we have never addressed the root cause of the problem, 

the SGR itself. It is time to repeal this broken formula. We need 

to do it this year. 

The most recent 10-year estimate for repealing the SGR is about $139 billion. This is a lot of money, but last year’s estimate for repeal was nearly twice that amount. So we must act. But we cannot 

just repeal the SGR; we need to change the entire fee-for-service 

system that Medicare uses to pay physicians. 

Fee-for-service promotes volume over value. That is certainly not 

a model of efficiency. We need to encourage physicians to coordinate patient care to save money and improve health outcomes. At 

the same time, we must remember that the payment system sets 

payments for other providers as well as physicians. This system 

2 

pays nearly 850,000 clinicians, and 300,000 of these clinicians are 

advanced practice nurses and physician assistants. 

The new SGR system must work for all of these health care providers. The Center for Medicare and Medicaid Innovation is testing 

new ways to compensate physicians and other providers who deliver high-quality, efficient care. The Affordable Care Act took a 

key step in controlling Medicare costs by creating Accountable Care 

Organizations. 

These groups of doctors and hospitals work together to provide 

quality care for Medicare patients. These multi-specialty groups are 

helping us understand how to incentivize providers to provide 

value. These organizations share in the savings they achieve when 

they provide more efficient quality care. 

I am proud that the Billings Clinic in Montana became an Accountable Care Organization this past January. Teams of providers 

are working together to coordinate care for chronically ill patients. 

That is just one of their missions. They are also focused on improving access to primary care, with the goal of getting sick patients 

a doctor’s appointment the same day. 

While new systems are being tested, we need to improve the current system. Doctors and nurses who see patients every day can 

give valuable ideas about what works and what does not. That is 

why, in May, Senator Hatch and I sent a letter to the health care 

provider community asking for their advice: what can we do to improve the system? What would make your practice better? We 

asked for specific, concrete ideas. 

The response was encouraging. We received 133 letters. Physicians told us that they are working to improve their quality of care, 

to improve communications with patients, and to work in teams. 

They are trying. They are developing new types of practices with 

a focus on outcomes and continuous care. They are using evidencebased guidelines to reduce unnecessary services. Physicians want 

to improve their performance and efficiency, and Medicare’s payment policy needs to incentivize that improvement. 

I want to highlight the letter from the American College of Physicians. They gave us concrete examples, down to how Medicare 

could incentivize physicians to use guidelines to help them decide 

when to order tests and perform procedures. This would encourage 

doctors to provide the care seniors need and avoid unnecessary care 

that might cause harm. I am not saying we will accept all of their 

suggestions, but their comments help us see different angles of potential policies. 

We also have brought experts to the Finance Committee to hear 

their ideas about fixing the SGR. We held three roundtables and 

a hearing in May. It is now time to hear from CMS. 

In his 2014 budget proposal, the President agrees that we need 

to move to alternative payment models, and he recognizes this will 

take time. His budget proposal also advocates reforms to the current system. Today we will learn what CMS is doing to improve 

physician payments. We want to hear CMS’s views on a new plan 

for Medicare physician policies. 

For, as Benjamin Franklin warned, ‘‘You may delay, but time 

will not. . . .’’ So let us get to work repealing this flawed system 

and developing a new one that works for providers and patients. 

3 

Senator Hatch is not here this morning. Oh, he is? Yes, he is 

here. Boy, what timing. I am impressed. I am impressed. 

[The prepared statement of Chairman Baucus appears in the appendix.] 

The CHAIRMAN. Senator Hatch, it is all yours. 

OPENING STATEMENT OF HON. ORRIN G. HATCH, 

A U.S. SENATOR FROM UTAH 

Senator HATCH. Well, thank you, Mr. Chairman. Thank you for 

calling today’s hearing. This is an important subject. As many of 

you know, over the past several years both Chairman Baucus and 

I have called for permanent repeal of SGR. Indeed, over the past 

year Medicare physician payment issues have received significant 

attention from this committee. 

Just last summer we convened several roundtable discussions 

with former CMS administrators, leading private sector health organizations, and leading physicians, to gain better insight into physician payment reform efforts and ideas to improve our payment 

system for physicians serving Medicare patients. 

This is our second hearing on physician payment issues this 

year. Moreover, the last 2 months the chairman and I have received more than 130 responses to the letter we sent to the health 

care community seeking input on improving the physician fee 

schedule and helping physicians transition to alternative payment 

methods as they develop. 

I want to thank the stakeholder community for their thoughtful 

responses. Rest assured, we will give them strong consideration as 

we work to find a long-term solution for paying our physicians. 

There is no doubt that we have all grown weary of the end-of-theyear scramble to stop the draconian payment cuts to physicians 

serving Medicare beneficiaries, but this year is different. We have 

a new, important consideration to encourage our action. 

According to CBO, the current cost to repeal the SGR has been 

substantially reduced. If the Congress does not act now, when will 

we ever find a path forward? We must seize this opportunity, and 

it is up to this committee to find the solution. We must act soon 

so we can finally put our physicians on a stable financial footing. 

I look forward to hearing from Mr. Blum this morning about how 

CMS has sought to improve the Medicare physician payment system and how the administration can work with us to find a bipartisan path forward. I want to thank you for being here. We appreciate your being here to testify. 

Thank you, once again, Mr. Chairman, for continuing this important discussion. I look forward to continuing to work with you as 

we look to provide a stable foundation for paying our physicians 

now and in the future. I believe we are making real progress, and 

I am hopeful we will produce a permanent solution this year. I 

think we have to. 

Thank you, Mr. Chairman. 

The CHAIRMAN. Thank you, Senator, very much. I appreciate 

that. 

[The prepared statement of Senator Hatch appears in the appendix.] 

4 

The CHAIRMAN. I am pleased to welcome today’s witness, who is 

Jonathan Blum, Acting Principal Deputy Administrator at the Centers for Medicare and Medicaid Services and Director of the Center 

for Medicare. 

Jon, it is great to have you back. You have provided invaluable 

service to this committee when you have worked with the committee in years past; I know you will today too for CMS. Thank you 

very much for your service and all that you do. 

As you know, our standard procedure is, your statement will be 

included in the record, and we ask you to speak for about 5, 6 minutes. But take your time, and say what you want to say. 

STATEMENT OF JONATHAN BLUM, ACTING PRINCIPAL DEPUTY ADMINISTRATOR AND DIRECTOR, CENTER FOR MEDICARE, CENTERS FOR MEDICARE AND MEDICAID SERVICES, 

BALTIMORE, MD 

Mr. BLUM. Thank you. Chairman Baucus, Ranking Member 

Hatch, members of the Finance Committee, thank you for holding 

this hearing and giving CMS the chance to discuss its recommendations for how to reform Medicare’s physician payment system. 

There are two issues for us to consider: (1) how to set a realistic 

baseline for physician payments, the so-called SGR issue; and 

(2) how to reform the payment system to continue its shift from 

paying for volume to paying for value. 

If Congress fails to act before January 1st, CMS will have no 

choice but to reduce physician payments by 25 percent. Over the 

past decade, Congress has stepped in to avoid these reductions, but 

often at the very last minute, creating tremendous confusion for 

physicians and their patients, not to mention wasted funds and 

time as we scramble to implement the cut and then to reverse it. 

CBO’s latest estimates for a fully funded fix are at the lowest 

level in recent memory. This year can be the year that we put the 

annual SGR issue to rest. Indeed, the President’s budget once 

again proposes a fully funded SGR fix. We agree with the growing 

consensus among the Congress and stakeholder groups that a fix 

to the baseline should be paired with reforms for how we pay physicians. 

Specifically, our budget recommends four core principles for any 

reform: (1) providing a period of payment stability where the update factor would be predictable for a multi-year period; (2) continuing the development of new payment models like ACOs and 

primary care medical homes where physician practices and groups 

are accountable for the total quality and total cost of the care; 

(3) over time, studying differential payment updates based on physicians’ successful participation in these new models; and (4) continuing our pathway forward to make the underlying physician 

payment system more accurate, more focused on primary care and 

patient care coordination, and more focused on the total quality 

and value of the care. 

CMS’s current work to implement the Affordable Care Act and 

other changes have laid the groundwork for these four principles 

articulated in the President’s budget, and, while not always discussed, there has been tremendous work undertaken over the past 

5 

5 to 6 years that has made significant changes to our current physician payment system. 

Working together, we have changed the underlying physician 

payment system in five ways. First, we have shifted the payment 

system to increase payments for primary care services. 

Second, we have reduced our payments dramatically for high-cost 

imaging services. These high payments not only waste valuable resources, but have also led to inappropriate utilization, which is 

costly and harmful to beneficiaries. 

Third, CMS has established new payment codes to reward carecoordination activities. Last year, CMS built separate payment 

codes for transition management services to help beneficiaries navigate from the hospital setting to a post-acute care setting or back 

to their home. In this year’s physician payment rule, we proposed 

to add new payment codes to pay for complex care management for 

those beneficiaries who have multiple chronic conditions. 

Fourth, over the last few years we have reviewed over 1,000 payment codes that represent 40 percent of payments under the Physician Fee Schedule. Revaluing these codes will reduce Medicare 

costs as well as shift the value of our fee schedule to primary care 

services. Continuing in this direction, in this year’s payment rule, 

CMS has proposed to pay for physician service no more than what 

is paid for the same service at a hospital setting. This represents 

a strong step towards reducing site-of-service payment differentials. 

Fifth, we have begun the process to phase in the value modifier. 

In 2015, the value modifier will apply to about 25 percent of all 

physicians. Under our just proposed rule, the percentage will grow 

to 60 percent by 2016. 

The President’s budget framework is also built upon the continued development of new payment models that move away from the 

open-ended fee-for-service system, and here we see much potential 

for the basis for future legislation with promising results beginning 

to emerge from CMS’s work. 

For example, we are very pleased with the status of the ACO 

program. To date, the program is serving 10 percent of the total 

fee-for-service Medicare population. We expect to approve many 

more ACOs into the program for the January 1, 2014, start date. 

Despite press stories that some Pioneer ACOs may choose to shift 

their participation to the base Shared Savings Program, we expect 

that the pioneer track will demonstrate overall savings in its first 

year. 

We are also encouraged by our primary care medical home programs. Although it is still early to measure cost savings, it appears 

as though the programs have moved key quality metrics in parts 

of the country. 

In short, we are at a crossroads for long-term physician payment 

reform. The opportunity to permanently fix the SGR has never 

been better. Congress should not waste this opportunity. We have 

also demonstrated that we can make substantial changes to our 

current physician payment system and build new payment models 

to phase out the open-ended fee-for-service program. CMS stands 

ready to assist this committee with your work. 

The CHAIRMAN. Thank you, Mr. Blum. 

6 

[The prepared statement of Mr. Blum appears in the appendix.] 

The CHAIRMAN. You mentioned in your statement payment stability. I assume that is sort of a short-term or a solid, stable transition into a more permanent system. Could you tell us more or give 

us more definition of what you mean by that? 

Mr. BLUM. Well, we think there are two reasons we need payment stability. Number one is that the annual update factor of the 

threat of 24-, 25-percent reductions, I think, has created confusion 

within the physician community. But I think our first principle is 

to make sure that we set payments that are predictable, that physicians can plan for. So that is principle number one. 

But we also feel that we need more time to help physicians participate in new payment models. Our budget does not say precisely 

what that period should be, but what I would recommend is a period of 4 to 5 years where we can give stability, give time, but also 

create more opportunities for physicians to participate with a new 

payment model. 

The CHAIRMAN. So, if I heard you correctly, you are saying in 

about 4 to 5 years you think you will have worked through the payment models and come up with the ones you think make the most 

sense? 

Mr. BLUM. We believe that a period of stability is important. 

That seems to us about 4 to 5 years. That will give CMS more 

time, physicians more time, to develop the capabilities. It is hard 

work to participate within an ACO-like model, but we feel that we 

need to set that period for stability, but also to continue the shift. 

So 4 to 5 years seems to us the correct balance. 

The CHAIRMAN. In addition to ACOs, you mentioned medical 

homes. What are the basic ways you are working to move from feefor-service to quality, and how will they work? 

Mr. BLUM. Well, we have different models that have been established, both by the law but also through our new demonstration authority through the Center for Innovation. Clearly we have placed 

tremendous emphasis on Accountable Care Organizations, and, to 

date, the results are promising. 

We expect to see overall savings in the pioneer track that was 

the first wave of the program, so we feel that the ACO program has 

promise for continued success. The ACO is not going to be able to 

serve all physicians, so that is why we have also created other 

models, like primary care medical homes, that are more tailored to 

a physician practice. 

We also have a program being put in place right now, the value 

modifier, that is going to apply to all physicians, where a portion 

of their payment will be tied to the overall quality, to the overall 

value, of their care. 

So I think it is important that we create multiple models that 

are tailored to different geographic circumstances. There is not 

going to be a one-size-fits-all model. That has been one of the key 

lessons for CMS in the past couple of years. But we do see promise, 

we do see much more opportunity for more physicians to participate. 

The CHAIRMAN. So, in the short term, what changes would you 

like to implement, or maybe you need new authority? This is this 

7 

year. We are not going to implement this for a few more years. 

What do we do in the short term? 

Mr. BLUM. Sure. One of the reasons why the CBO score has come 

down is because the agency is managing payments much more aggressively. I talked about the misvalued code initiative, where CMS 

now is actively reviewing payment codes that are misvalued, that 

seemed to be driving utilization. 

The CHAIRMAN. Misvalued why? 

Mr. BLUM. Because they are just paid at too high of a level, 

which creates over-utilization, like high-cost imaging in the past. 

So it seems to us that any reform package needs to also continue 

to direct the agency to stay vigilant, to make sure that our underlying payment system that is the building block to ACOs and primary care, stays as accurate as possible. I think more direction 

from the Congress to encourage CMS to be vigilant, to be aggressive in taking on misvalued codes, would pair very well with the 

overall payment strategy. 

The CHAIRMAN. Is there a question of doctors having immediate 

access or timely access to their own quality data that helps them 

improve their own performance? 

Mr. BLUM. We think it is vitally important that we provide that 

information back to physicians. Right now, through the value modifier concept and the physician feedback reporting, we are working 

to phase in that feedback, which currently covers about an 8-month 

time period from the time when a physician submits data, to the 

time the agency collects data and then submits it back to physicians. Clearly we have more work to do to make it more real-time, 

but, based on our analysis, we are working as well as any other 

private sector system that we are aware of. We are going to work 

harder to kind of speed that timetable up. 

The CHAIRMAN. My time is about out here. Could you give me 

just a rough sense and say, in 5 years, what percent of physicians’ 

and physician assistants’ reimbursements will be quality-based as 

opposed to fee-for-service, and, in 10 years, what will those numbers be? 

Mr. BLUM. That is a hard question, but I think Congress should 

establish that goal going forward. Right now in our physician payment system, a small portion is tied to quality, somewhere around 

2 to 4 percent. I think having a schedule set going forward would 

be another important step for Congress to establish. 

The CHAIRMAN. What additional authority would you like? 

Mr. BLUM. The budget neutrality requirement that we have in 

the statute constrains our ability sometimes to be truly forceful in 

reducing over-valued services. I think one opportunity we have is 

to think carefully, but also to think about waiving that budget neutrality requirement so we can drive total costs down to a lower 

level. 

The CHAIRMAN. Thank you very much. 

Senator Hatch? 

Senator HATCH. Mr. Blum, many of the ongoing payment reform 

efforts that are being conducted by CMS require increased quality 

reporting from physicians. Over the past several years, CMS has 

implemented and expanded the Physician Quality Reporting SysVerDate Nov 24 2008 17:19 May 28, 2014 Jkt 000000 PO 00000 Frm 00011 Fmt 6633 Sfmt 6633 R:\DOCS\87971.000 TIMD
8 

tem, or the PQRS. However, physician participation remains below 

50 percent, as I understand it. 

Some have suggested that the measures included in PQRS are 

not meaningful to clinical practice, that the system is too heavily 

weighted to process measures. Many have said the system needs to 

be re-tooled to focus on outcomes and outcomes measurement. 

Do you agree with these critiques of the PQRS, and, if so, how 

can CMS move to a more outcomes-based reporting system? 

Mr. BLUM. I think there are a couple of considerations built into 

your question that are all very important. First is, that we agree 

that we need to increase participation in physician reporting of 

quality metrics. With the value modifier policy going into effect, 

physicians will face more and more financial penalties for failure 

to report. 

So we think, over time in the next couple of years, that that 50 

percent will grow as physicians become aware that, if they do not 

report, do not participate, their payment levels will be decreased by 

the program according to current law. So, while we are still below 

50 percent, that percentage has grown in the last couple of years, 

and we expect it to grow. 

In regards to the number of quality measures, this is really a 

balance that we are trying to strike. We want to make sure that 

quality metrics are simple and they are meaningful and they can 

be comparable, but at the same time we want to make them relevant to a physician practice. 

One dynamic is that, when you reduce the number of measures 

and focus on a core quality set, you make those measures less relevant to certain specialties. So we are trying to find the right balance between simplicity and reporting that still makes those measures relevant to individual physician practices. 

Senator HATCH. Now, many experts have highlighted the importance of improved communications between payers and providers of 

care. A major hurdle to physician payment reform is physician engagement. How often does CMS share quality and resource data 

with practicing physicians, and, two, what has CMS done to improve its engagement with physician providers? 

Mr. BLUM. Well, one of the requirements that we are working to 

implement that was led by the Finance Committee in a bipartisan 

way, is to direct the agency to provide feedback reports back to 

physicians. We have started that process. We have piloted in four 

States. That is now being phased in for all physicians. 

But over time, in the next several years, all physicians will be 

given feedback reports based upon the relative quality, relative resource use compared to their peers, by law, by policy, by the agency. We are making that feedback confidential to physicians, but we 

are providing, and will provide to all physicians over the next several years, the feedback on their relative quality, relative performance, to encourage better engagement. 

Senator HATCH. Many of your efforts have been focused on primary care physicians. While there is little disagreement that we 

need a greater focus on primary care in our health system, most 

of our spending on Medicare occurs in specialty medicine. Currently, many of the payment reform efforts have been aimed at exVerDate Nov 24 2008 17:19 May 28, 2014 Jkt 000000 PO 00000 Frm 00012 Fmt 6633 Sfmt 6633 R:\DOCS\87971.000 TIMD
9 

panding primary care, but little attention has been paid to developing new models of payment for specialty physicians. 

What are some of the challenges you face as you evaluate opportunities within the various specialties, and how does CMS plan to 

advance payment reform for specialty physician practices? 

Mr. BLUM. It is true, and we are concerned with this dynamic, 

that models like ACOs and primary care, by definition are designed 

to capture more primary care physicians than physician specialists. 

So we believe that it is vitally important for us to move, in the next 

phase, to build payment models that are more tailored and more 

responsive to physician specialties. 

One of the things that we have done through the Innovation Center this year is to solicit from physician specialties ideas for new 

payment models through a grant process that must lead to a potential for new payment models. 

We want these models to be led by physician specialties, but we 

have created a brand-new opportunity through our Innovation Center to build, working with societies, those new payment models that 

are much more tailored towards oncologists, for example, or other 

physician specialties. 

Senator HATCH. Mr. Chairman, my time is up. 

The CHAIRMAN. Thank you, Senator, very much. 

Senator Wyden? 

Senator WYDEN. Thank you very much, Mr. Chairman. 

Mr. Blum, a big part of the Affordable Care Act was based on 

the concept of shared savings. I think you all felt strongly about 

it, as we did. There is bipartisan interest in this. In order to tap 

the full potential for the concept of shared savings, providers have 

to know how they are doing. 

They have to know, in effect, from their patients and the data, 

how things are going. The providers are telling us they cannot get 

their claims in real time. They cannot get that information. Now, 

Senator Grassley and I have introduced, and I think you are 

aware, legislation to open up the Medicare database. 

I think that in order to tap the potential of shared savings, this 

is another reason to support this bipartisan legislative approach. 

What is your reaction to that? Because I think that, if we do not 

open up the Medicare database right now, it is going to be hard to 

empower consumers at a time when they clearly want to make 

choices about cost-effective health care, and my sense is it is going 

to be hard to tap the full potential of shared savings. What do you 

all want to do about that? If you decide today you want to announce support for the bipartisan bill, that would be fine too. 

[Laughter.] 

Mr. BLUM. I am not sure I can say that today, but what I can 

say is, that we agree that when providers can see their full claims 

information, that is powerful. Our feedback from the participants 

in the ACO model, the bundled payment model, is that, for the first 

time, these opportunities have allowed them to see the complete 

picture of how their patients receive care, and to design interventions. So we are fully supportive and fully share the goal that more 

information, more data, is necessary for these payment models to 

succeed. They have to be balanced with—— 

10 

Senator WYDEN. The providers, Mr. Blum, are saying they cannot get it now in a timely way. 

Mr. BLUM. Sure. 

Senator WYDEN. That is the reason I am asking. So what are you 

going to do about that? 

Mr. BLUM. Well, I think a couple of things. For organizations 

that come into our ACO program that sign confidential data use 

agreements, they can see complete claims information. So working 

with our models, that creates—— 

Senator WYDEN. Within what time period? After they sign those 

agreements, when can they see the data? 

Mr. BLUM. I believe they receive the data in two different ways. 

They can receive raw claims versus summary information. One of 

the other learnings that we have taken from the ACO models is 

that it is very difficult for providers themselves to handle the 

claims. It takes computer power, it takes infrastructure. So any effort, I believe, to provide that data back must be meaningful, must 

be easy to understand. 

The ACOs that we work with had a lot of challenges taking on 

that kind of degree of zeroes and ones in our data. 

So I think any effort to expand access needs to take into account 

that that data is raw, but it has to be turned to data that—— 

Senator WYDEN. Will you get back to us in writing on the time 

period when providers can expect to get access to data—— 

Mr. BLUM. Yes. 

Senator WYDEN [continuing]. Because I asked it a couple of 

times, and you did not answer that question. So get back to us this 

week on the time period when providers can get that data, because 

they have to have it for shared savings. 

Mr. BLUM. Sure. So one thing to consider for your legislation is 

that we are dependent upon providers to submit the data to CMS, 

so, under current law, I believe they have up to 12 months to submit a claim from the time that it is provided. So that is one challenge to timely data, so we need to work through that provision before we can provide that real-time information back. 

Senator WYDEN. We will be glad to work with you on it. But 

again, if we are going to make an integral part of the Affordable 

Care Act—something I support, I know you support—work, and 

that is a shared savings concept, we have to have a timeline when 

providers can get their data, because, without that data, they cannot really compare it and tap the potential of the concept I know 

you are for. 

One last question with respect to the Innovation Center. In effect, CBO has essentially said that savings, any ideas that we now 

come up with, are already accounted for. Essentially, that is built 

into the Act for the Innovation Center. 

I just want to make sure that CMS is clear that it is not going 

to get credit for every idea under the sun with respect to holding 

down costs and innovation, that congressional legislation and other 

proposals can also be scored and they will not be held up just because there is an interpretation from CMS that every single idea 

under the sun is going to be due to the Innovation Center. Can you 

tell me that this morning? 

11 

Mr. BLUM. We are eager for ideas, and we will be happy to work 

with you and your office to identify new ideas. I cannot speak to 

CBO’s scoring conventions, but what I can say is, we want to find 

every opportunity to reduce the costs of care while improving the 

quality of care. 

Senator WYDEN. My time is up. I just do not want all of the 

members of the Finance Committee, Democrats and Republicans, 

to in effect get boxed in, and, when they have good ideas, everybody says, oh, we cannot pass that legislation because savings all 

come from the Innovation Center. So we would like to follow that 

up with you as well. 

Mr. BLUM. Great. Very good. Thank you, Senator. 

Senator WYDEN. Thank you. 

Thank you, Mr. Chairman. 

The CHAIRMAN. Thank you, Senator, very much. 

Senator Grassley is not here. Senator Stabenow? 

Senator STABENOW. Thank you very much, Mr. Chairman. 

Welcome, Mr. Blum. It is nice to see you. I want to talk more 

about the proposed rule that you have as it relates to care coordination, which is so important, your primary care and complex 

chronic care management proposal for separate payment for complex chronic care management services in 2015, and specifically 

around the issue of Alzheimer’s disease. 

This is something that affects, now, one out of nine seniors in 

some way, at a huge cost for all of us, as well as for families, and 

so on. When we look at the fact that there are 5 million people living with Alzheimer’s disease, and about half of them have never 

gotten a formal diagnosis, and only 19 percent of people over 65 

who have dementia have gotten any kind of a diagnosis recorded 

in their medical records, somehow we have to focus on this. 

Earlier this year the advisory council created under the national 

plan to address Alzheimer’s disease, as you know, recommended 

that Congress and CMS re-design Medicare coverage and reimbursement to encourage appropriate diagnosis of Alzheimer’s disease and to provide the coordinated care planning that is necessary. 

I have introduced a bill based on that with Senator Collins and 

Senators Brown, Menendez, Nelson, and others, called The Hope 

for Alzheimer’s Act, that would do just that, namely, improve early 

detection of Alzheimer’s disease, help families from the moment 

of diagnosis, help families, patients, and caregivers be better 

equipped with knowledge of treatment options, support options, 

and so on. 

So the bill would streamline the services by combining the existing Medicare benefits for diagnosis and care planning into a single 

package of services and include a comprehensive clinical diagnosis 

evaluation for Alzheimer’s disease and care planning services. 

So, given all that you are doing to streamline payments and emphasize care coordination, I guess my question is, how does Alzheimer’s fit into that? Are you looking at Alzheimer’s disease and 

care planning to enhance the effort, and are you considering Alzheimer’s as one of the conditions under your complex chronic care 

coordination services? 

12 

Mr. BLUM. Sure. We agree that early detection, early diagnosis 

for Alzheimer’s, and all chronic conditions, is key to reducing overall spending but, more importantly, to improving the quality of life 

for the patients whom we serve. We agree with the growing consensus that a lot of the care that happens, provided by a physician, 

by their practice, happens in non-face-to-face settings, so we need 

to create more discrete payment opportunities for that care that 

happens in the non-face-to-face setting, which led us to propose 

this new complex care management fee, really built on the medical 

home concept, where we really incent active patient engagement 

with their physicians and pay for the care that happens in the nonface-to-face setting. 

We have also added to our new wellness visit that dementia 

screening needs to be an important part of that. I have had a 

chance to read your legislation, and I want to understand it better, 

but I think we agree in concept, and hopefully the changes that we 

have made through our own authorities are consistent and supportive to your overall policy goals. 

Senator STABENOW. Well, I look forward to working with you. It 

seems to me the direction you are going in is exactly what we are 

talking about, and there is a huge need, as you know, in the area 

of Alzheimer’s disease, for supporting patients and caregivers. It 

seems to me, from reading the proposed rule, that this would be 

part of that, so I want to work with you on that. 

Let me talk a little bit more about ACOs. I guess my time is just 

about up, but let me just ask, when we talk about the fact that 

there are $500 billion in reductions projected for Medicare spending 

over the next 3 years, we know that is not all ACOs, it is a lot of 

things. 

But I would just indicate as my time runs out, rather than asking a question, that I think we have a lot of opportunities, certainly 

in Michigan, with what we have seen with ACOs and the Pioneer 

ACOs. I think there is a lot of opportunity to reduce costs in a way 

that increases quality, and I look forward to working with you on 

this. 

Mr. BLUM. Great. 

Senator STABENOW. Thank you, Mr. Chairman. 

Senator HATCH [presiding]. Thank you, Senator. 

Senator Cardin? 

Senator CARDIN. Thank you very much, Mr. Chairman. 

Mr. Blum, welcome back to our committee. It is always nice to 

have you here. 

I agree that we have two issues we have to deal with. One is the 

elimination of the SGR, but then, also, what do we replace it with? 

I would just urge more urgency in finding what we can replace it 

with. As Chairman Baucus pointed out, we have a more friendly 

estimate that we can work with this year that may not be available 

in the future. 

Second, we need savings in Medicare, and the physician reimbursement structure offers great promise of savings in the system. 

So I would just urge us all to have a greater sense that we need 

to try to get this resolved sooner rather than later so that we can, 

once and for all, get rid of the fear that physicians have that we 

will hit a deadline and these cuts will become real and the beneVerDate Nov 24 2008 17:19 May 28, 2014 Jkt 000000 PO 00000 Frm 00016 Fmt 6633 Sfmt 6633 R:\DOCS\87971.000 TIMD
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ficiaries could be denied access to care, and replace it with a plan 

consistent with delivery system reforms and quality issues that we 

have talked about, that we have enacted in the Affordable Care 

Act. 

I want to talk about one issue that is particularly important to 

Maryland dealing with the durable medical equipment and the 

competitive bid second round that took effect on July 1st. The information I have is that there were 68 contracts awarded in Maryland involving 47 different companies that are not licensed to provide services in Maryland. That is a direct violation of the law that 

requires companies, to win bids, before they can submit a bid, to 

be licensed by the State. That was not true in Maryland. 

We have written to you. Senator Mikulski and I have written to 

you of our concern here. We know there was a similar problem in 

Tennessee. You took some action, but not complete action, on Tennessee. Can you just give me an update on where we are? This is, 

again, an urgent issue. 

We have companies that did not win bids that are in danger of 

going out of service, providing not only concern about access to care 

for the Medicare population but also the Medicaid population. Are 

you planning to re-bid? What are you planning to do? It has been 

a couple of weeks since we have written to you on the subject. 

Mr. BLUM. Well, thank you for your letter and thank you for the 

attention. We believe that competitive bidding is vitally important 

to the Medicare program. We have expanded the program from 

nine areas of the country to 100 areas of the country. We have 

maintained the principle that we will track down and work through 

any issue that is brought to our attention. 

We have heard about various State licensure issues, and I have 

directed our team to chase them all down. We have isolated two 

parts of the country where we had some issues—Tennessee you 

mentioned, but also the State of Maryland. We heard that 68 sites 

potentially did not have State licensures. That has now been 

brought down to 47 agencies. I am confident that the majority of 

those 47 will meet State licensure requirements. We are still working through the complete list, but I think right now my analysis 

is that the majority have complied with State requirements. 

Senator CARDIN. Was there not a requirement that they be licensed before they could make a bid? 

Mr. BLUM. We are still working through that issue, but my understanding is that the majority have fulfilled their obligations. We 

are going to stand by the principle that every operating supplier 

must have followed State licensure requirements at the time they 

bid, but also today. CMS took action in Tennessee. We want to 

make sure that any action that we take is considered and carefully 

addressed. I pledge to work through this issue as fast as we possibly can. 

One of the issues that we discovered in the State of Maryland 

was that they were not following, not necessarily enforcing, their 

own State licensure requirements. CMS will make sure they are 

enforced, but, of the 47 that have been identified, I am confident 

that the majority will meet State licensure requirements. 

Senator CARDIN. Let me just make a comment in my few remaining seconds. Our concern is access and that there be access to both 

14 

the Medicare and Medicaid population. There has been an arrangement between CMS and the States on State licensures. I do not 

quite understand your reply challenging the independence of the 

State to determine licensure issues. 

It sounds, by your reply, that it looks like CMS may be taking 

over licensure responsibilities, which I do not think you really want 

to do. I think the law was pretty clear that they had to be licensed 

before the bids were submitted. And now disadvantaged companies 

that no longer are contract companies may go out of business. That 

does not seem fair to me. 

Senator Mikulski and I will be following up with you, and we 

would expect that you will keep us informed on this issue. 

Mr. BLUM. Absolutely. Our principle is the same as yours. 

Senator HATCH. Senator Roberts? 

Senator ROBERTS. Thank you, Mr. Chairman. 

Mr. Blum, I want to start out by thanking you and your staff for 

your help in providing technical assistance on legislation I have 

proposed related to the long-term acute care hospitals. It is called 

LTAC. I know you are familiar with that. We believe we are making headway on a score with CBO, and I think that is in part attributed to your efforts, and I want to thank you. 

We are hopeful that after this round of comments, we will receive 

the feedback that we have addressed outstanding concerns from 

CMS. I think there are a few outstanding issues. I wanted to make 

sure that you and the committee knew that this continues to be a 

top priority for me and others on the committee, so thank you for 

that effort. 

Last night I was involved in one of these tele-town hall meetings 

that members of the Senate conduct, where you are talking to quite 

a few folks. You are lucky if you get, what, 30, 32 questions in in 

the hour that you have. But I got several questions like this. 

There was a very nice lady from Wichita—and I get the same 

question when I am home a lot—who asked me why she cannot 

find a doctor and why the doctor of her choice will no longer accept 

her Medicare. That is true in Dodge City, Abilene, Salina, Topeka, 

Kansas City, Wichita, all over our State, and I think is pretty 

much true throughout rural and small-town America. 

I have heard that a growing number of doctors in Kansas are no 

longer accepting Medicare patients due to the uncertainty and the 

instability in the system, as you yourself have pointed out. I know 

this is a real challenge for us. 

The situation right now, I think, is getting pretty dire, more especially in the rural health care delivery system. I do not know 

what percent of our doctors in Kansas—I am not sure we will 

know, but there is an estimate now that 30 percent are not accepting Medicare patients. 

Then we have a lot of doctors who are joining up to be salaried 

employees with various hospital groups as opposed to operating in 

the fee-for-service environment. The reason for it, as we try to 

delve into that or dig down into the reason as to why they are 

doing that, is because they are just, quite frankly, damned tired of 

putting up with all the regulations around quality control. 

Lord knows, nobody wants to be opposed to quality control, but 

they just cannot keep up with the regulations with regards to the 

15 

small practice that they had. Now they have become salaried. Well, 

now we are back to HMOs, and now we are back to managed care. 

We went through that, and that was not a very pleasant experience. 

Then figure out how many doctors are over 50 years old and how 

many doctors are planning on retiring in the next couple of years 

with the uncertainty with the Affordable Care Act and actions of 

CMS trying to achieve the answers that the Act says that you must 

do, unless you delay it—— 

At any rate then, you have about, what, 15, 20 percent of feefor-service people out there? Like Senator Cardin pointed out, we 

have a big access challenge on our hands, and I am most interested 

to know if you can address whether CMS is giving the rural health 

care delivery system the attention it needs. I know you are trying 

to achieve balance. I know you are trying to achieve quality control. 

I know you are trying to achieve savings. 

As a matter of fact, I think the administration does not recommend a specific way to pay for the SGR repeal, but instead adjusts the baseline to reflect a permanent fix. So we are adjusting 

the baseline and we are achieving savings, but we do not have a 

fix. It worries me that we are going to get down to a situation 

where people have to drive 50, 75, 100, 150 miles to get to a doctor. 

That has been our problem, that has been our challenge for a 

long time. It is true in Montana, it is true in Utah, Wyoming, Kansas, and I can just go around the room here in regards to the committee. Now I will quit talking and ask you to say that you are certainly looking out for the rural health care delivery system. 

Mr. BLUM. Absolutely. I think the core principle that I would say 

needs to be part of any legislation is not so much the CBO score, 

but whether patient care is better and whether patients get better 

access to health care services than they do today. And whether it 

is the ACA, whether it is our payment rules, whether it is the quality framework that has been put in place in a bipartisan way, we 

want to make sure that health care costs are lower through better 

coordination, better engagement. That is as true in rural areas as 

it is in urban areas. 

We work very hard to make sure that our new payment models 

are responsive to the challenges of rural America. We work very 

hard to make sure that we are allowing all professionals to practice 

at the full scope of their State license. We have more work to do 

working with States, working with others, but I think the absolute 

core principle needs to be that, in any payment reform or SGR reform, we have to be able to say that patients have better access to 

their physicians than they do today in all parts of the country. 

Senator ROBERTS. Well, I thank you for your response. I would 

simply reflect the desire of, I think, virtually every Senator who 

has made comments here, for you to provide the specific policy options, how this is going to work, to us as soon as you can. Thank 

you. 

The CHAIRMAN. Thank you, Senator. 

Senator Brown, I think you are next. 

Senator BROWN. Yes. Thank you, Mr. Chairman. 

Thank you for joining us, Mr. Blum. I appreciate it. I have been 

following House efforts to, for want of a better term, repeal and reVerDate Nov 24 2008 17:19 May 28, 2014 Jkt 000000 PO 00000 Frm 00019 Fmt 6633 Sfmt 6633 R:\DOCS\87971.000 TIMD
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place SGR. The House Energy and Commerce Committee majority 

staff released legislation maybe a couple of months ago that would 

replace the Sustainable Growth Rate with three phases: (1) a period of stable payments; (2) payments based on quality; and 

(3) payments based on efficiency. 

It seems to me that, in a couple of big ways, we are already on 

the path toward paying for quality and efficiency. One is the Physician Quality Reporting System predating the Affordable Care Act. 

Second is, CMS is implementing the value-based modifider from 

the ACA, which will be phased in starting in 2015, to provide differential payments to physicians based on quality and cost of care. 

Would you sort of comment generally on their efforts, contrast 

them to what we are doing. In answering a couple of questions in 

the midst of that, are they kind of reinventing the wheel? Is it 

more costly and time-consuming to sort of deconstruct and rebuild? 

Just if you would kind of outline that for us, your observations. 

Mr. BLUM. I will make a couple of points. Number one, I think 

it is a tremendous achievement that all three authorizing committees are working towards a solution to the SGR. There is a growing 

consensus that the change needs to be paired with different payment models to phase out of the open-ended fee-for-service program. I think one question and one concern that should be brought 

forward is, there has been tremendous work over the last 10 years, 

led in a bipartisan way from this committee and others, to build 

the quality structure that we have: PQRS, pay for reporting, the 

value modifier. 

I think any effort that goes forward should build upon the current work that we have rather than restart/refresh. We have built 

tremendous infrastructure, the physician community has built tremendous infrastructure to participate. 

While there is a reason for celebration that all three authorizing 

committees seem poised to want to fix the SGR on a permanent 

basis, we have to be mindful that we send consistent signals to the 

physician community, not to restart/refresh, but to build upon the 

important work that really has led, in a bipartisan way, toward 

quality reporting, pay for value, and we should not step back where 

we should step forward. 

Senator BROWN. Can you say with some certainty that PQRS and 

the beginnings of the Affordable Care Act are some of the reasons, 

either or both of those, that SGR costs into the future are less than 

they were projected to be some time ago? 

Mr. BLUM. Well, I do not believe that the lower CBO score is a 

statistical fluke. It really is the result of a lot of hard work and a 

combination of driving more value in our payment system, focusing 

on care coordination, care quality. Over the last 3 years, Medicare 

costs have grown at almost zero percent due to a combination of 

many things: focusing on value, focusing on quality, focusing on 

payment accuracy. The reason why the CBO score is so low is because of all this hard work. 

We have to continue that, we have to build upon that, to ensure 

that we send consistent signals that we do not intend to replace 

work that has been done over the past 5 to 10 years. But I believe 

that the reason why Medicare costs have come down is due to a 

multitude of factors, including the focus on value, the focus on care 

17 

coordination, the focus on quality, and the focus on payment accuracy. 

Senator BROWN. Thank you. 

Thank you, Mr. Chairman. 

The CHAIRMAN. Thank you, Senator. 

Senator Enzi? 

Senator ENZI. Thank you, Mr. Chairman. 

Thank you, Mr. Blum, for being here. Your testimony was some 

of the more difficult testimony that I have ever waded through. I 

am not sure that I understand, even after your explanation. It 

sounds to me like you are kind of shifting the blame to the committees that are supposed to work on it without you providing a solution for the three committees to be working on. 

Your testimony says that you support a long-term plan to reform 

the physician payment system in a fiscally responsible way. However, the administration elected not to fix the SGR when we were 

doing the Affordable Care Act. The President promised a docs fix 

in the State of the Union speech while we were considering his reform package. Of course, he promised tort reform too. Neither 

showed up in the bill, yet the AMA stood behind him when he 

signed the bill. 

There is not any mention in your testimony of how we can pay for the cost of replacing the SGR, which I think costs about $140 

billion over the next 10 years. So what specific proposals would the 

administration support to pay for an SGR replacement, and have 

those proposals been scored by the CBO? 

Mr. BLUM. The President has put forward in his last five budget 

submissions for the Congress, a range of savings proposals to reduce costs in the Medicare program. That has been a consistent 

theme in the President’s budgets. This year, the President put forward Medicare savings proposals that were scored by our actuaries, 

about $370 billion, that more than paid for the cost of an SGR fix. 

We have proposed ways to reduce costs for our Medicare Part D 

program, for post-acute care services, for other services that we believe to be over-valued. 

The President also said that he is open to working with Congress 

to consider any idea to reduce Medicare spending that does not 

compromise access to quality care. So we believe that we have led 

on this. The reason, in part, that the SGR score is so low is due 

to a very, very strong focus on cost reduction, which is why it is 

so important that we think about things like competitive bidding 

for durable medical supplies, that we consider payment reforms to 

laboratory services, which CMS chose to take on this year. 

We believe that we have done a lot to reduce overall spending, 

but the President consistently has put forward, in his last five 

budget submissions, controversial, but very appropriate, ways to 

reduce Medicare spending that this year more than offset the costs 

to an SGR fix. 

Senator ENZI. I have to join Senator Cardin in his comments 

about the bidding process and allowing people to bid who have not 

gotten licensed yet. And they are doing bids for the whole United 

States without subcontracting, in rural areas particularly, and it is 

affecting Wyoming pretty dramatically. They come to the licensed 

provider on the bid process and tell them what price they can have 

18 

for the service that they are providing, not even knowing anything 

about the territory that they have to serve. 

But it appears to me that we are just kind of kicking the can 

down the road. There have been a number of bipartisan commissions and proposals, including Simpson-Bowles, Domenici-Rivlin, 

Coburn-Lieberman, that proposed making changes to Medicare 

Part A and Part B as part of a permanent solution, and those 

changes simplify the basic structure of Parts A and B, they reduce 

the costs for many seniors, they protect low-income seniors from 

catastrophic medical costs, and they better align Medicare premiums with the senior’s ability to pay. Such changes could be included as a permanent solution. Would the administration support 

those bipartisan reforms to the Medicare benefit as a part of the 

SGR solution? 

Mr. BLUM. As part of the President’s budget proposal this year, 

we have put forward ways to reform Medicare cost-sharing, for example, by adding cost-sharing for home health services for certain 

beneficiaries who qualify for home health services. We have proposed reforms to secondary cost-sharing, changes to Medigap. 

Senator ENZI. You are not answering my question about those bipartisan suggestions. You are going into some other things that 

you already covered in the first question. 

Mr. BLUM. We agree with the growing consensus that Congress 

and we should work together to reform Medicare’s cost-sharing 

structure. We have some proposals that were put forward to 

achieve that goal in our budget, and we are happy to continue that 

work together. 

Senator ENZI. Once again, the administration is saying, if you 

have any ideas, give them to us. I have had thousands of them 

thrown away, and it is a little bit discouraging. I think these were 

some good suggestions. I think they have been thrown away. I 

think you said you have been through 1,000 of the payment codes, 

and that is 40 percent. I thought there were 90,000 payment codes. 

My time has expired. 

The CHAIRMAN. Thank you, Senator. 

Senator Grassley? 

Senator GRASSLEY. Thank you. 

I obviously missed your testimony, because I was in a Judiciary 

nomination hearing, so I have a statement, but it ends with a question for you. So obviously, with this important issue before us, I 

thank you for being here to help us get an answer to it. 

The last time you were here, I asked if there was any defense 

for Medicare fee-for-service, where the provider is paid based on 

quantity of service provided without any regard to the outcome of 

quality of care provided or any responsibility to coordinate that 

care with other providers, and I think the answer that you gave 

was ‘‘no.’’ I believe that I even told you rather abruptly that your 

answer was ‘‘no.’’ 

I believe that any number of problems we face in Medicare begin 

with our payment system. Medicare pays based on the quantity of 

care provided. The payer and the provider are not at risk for quality of services provided. Why are we struggling with reimbursement for imaging? Because we focus on the amount and the cost 

19 

of services provided rather than the quality and the appropriateness of what is needed. 

Why are we struggling with reimbursement for durable medical 

equipment? Because we are trying to transition DME payments to 

a more competitive system that is perceived to have a greater interest in reducing the number of providers rather than improving 

the quality and appropriateness of the service provided. 

Why don’t we champion a payment system that penalizes hospitals for readmissions? Because the current payer has not figured 

out how to isolate and correct the problems that lead to readmissions with providers outside the hospital. Why are Medicare beneficiaries often caught in the cycle of acute episodes at the end of 

post-acute treatment, which really is just the pre-acute period before their next acute episode? Because the payer has never had the 

proper incentive to stop that cycle. 

We all know that the integration of services is critical for people 

with chronic conditions. Medicare is a system that desperately 

needs more transparency. Senator Wyden and I have drafted a bill 

to make Medicare data more available, though it is remarkable 

that we would even need that bill. There is no legitimate opposition. I believe that fee-for-service is fundamentally flawed. 

Now let me be clear: there are certain episodes of limited care 

where a specific payment for a specific service will always make 

sense, but I continue to believe that our system needs to be in transition towards a payment system that entails greater risk for both 

the providers and the payers. The payer and the provider must 

care about the outcome because of financial risk, not just some asyet-to-be-designed low-bar quality metric. 

When we talk about SGR reform, I realize that we cannot snap 

our fingers and make it happen next year or the next year, but if 

we are to pass anything this year, it has to point in the direction 

of where we need to be a few years down the road. 

I want to support SGR reform. We have wasted too much time 

and energy and money on this issue over the last dozen years, but 

I also need to see progress toward a better system. So my question, 

Mr. Blum, is this: what is CMS doing to increase the use of risk 

for providers and payers in helping design a sustainable Medicare 

for the future? 

Mr. BLUM. I think that is a great question, and I think we agree 

that we need to create multiple pathways to encourage more provider systems to enter into the transition from open-ended fee-forservice to alternative payments. We purposely designed the ACO 

program, which now has more than 250 organizations, some in 

your home State, to put us on the pathway to that transition. 

One of our learnings is, there are different degrees of preparedness across the country to transition to financial risk. So, one important principle is to create multiple opportunities, but to create 

predictable transition points to that transition. 

Depending on the geographic area, depending on the degree of 

competition in a given geographic market, that answer might be 

different for different parts of the country. But, like our ACO program that was purposely set up to have multiple pathways and 

predictable transition periods, that is one step the agency has 

taken to assist the transition that we are all trying to achieve. 

20 

Senator GRASSLEY. Thank you, Mr. Chairman. 

The CHAIRMAN. Thank you, Senator, very much. 

Senator Isakson, you are next. 

Senator ISAKSON. Thank you, Mr. Chairman. 

I think you answered the chairman earlier about this period of 

stable payment. You said it would be about a 4- to 5-year period 

of time? 

Mr. BLUM. Correct. 

Senator ISAKSON. Has the administration or have you recommended what the payment mechanism during that period of stability would be? 

Mr. BLUM. I think what our principle would be is that we would 

set an update factor that would be predictable, that would be set 

in statute. During that time table, that time period, two things 

would happen. Number one, the CMS, working with the Congress, 

would continue to develop new payment models, continue our pathway on ACOs, but also continue our work to make the fee schedule 

more accurate, more focused on care coordination, more focused on 

primary care. 

But then, once that transition period had been completed, or that 

period of stability had been completed, we believe that it would be 

appropriate for Congress to consider differential payment rates or 

updates depending on physicians’ successful participation in those 

new payment models to increasingly reward physicians who have 

made the transition to that value-based concept rather than the 

open-ended fee-for-service, as Senator Grassley talked about. 

So we think it is important to create that period of stability so 

we can continue our work to do those two things together: build the 

alternative payment systems, but fix the underlying building blocks 

that are the basis for those new payment models. 

Senator ISAKSON. So the 4- to 5-year period of transition or stability would be basically an extension of SGR with an inflation factor added to it for each year, so you know predictably over that 5 

years what reimbursement would be. Is that—— 

Mr. BLUM. Well, I think the goal would be to have something 

that is sustainable, that is consistent with the overall CBO score. 

But the vitally important point is that physicians have predictability for a period of time to help them transition to this new system. We do not think it is helpful to have a continuing threat of 

24- to 25-percent payment reduction to encourage more physicians 

to adapt to this new transition. 

Senator ISAKSON. When you cited high-cost imaging as one of the 

codes that you had reviewed and actually lowered the cost of to 

Medicare, I assume it was by reducing reimbursement. Is that correct? 

Mr. BLUM. Correct. 

Senator ISAKSON. And you did that evaluation based on the cost 

of actually delivering the imaging, I presume? 

Mr. BLUM. It is based upon a time-based notion that is built into 

the statutory framework, but in principle, yes. 

Senator ISAKSON. And so would it be fair to say that all codes 

are evaluated or reevaluated based on the actual cost of delivering 

the service which the code designates? 

21 

Mr. BLUM. By statute, we have to use a relative time-based approach, and so it is based upon the relative time and effort and 

work requirements to deliver a particular service. But what we 

know, for example, with high-cost imaging is, in the past, it was 

paid very well, and the use of it was high. 

Through acts of Congress and also through our own authorities, 

we have brought those payments down. We have not seen any 

degredations of access to care to our beneficiaries, but we do think 

it is appropriate for us to work together to continue that process. 

Senator ISAKSON. It begs the question, though, when you make 

that statement—and I respect the statement completely—that why 

physicians are dropping out of Medicare is because their reimbursement rates are so low they cannot stay in business, and it 

portends that maybe some of the coding and the evaluations that 

are done actually do not reflect the cost of a physician delivering 

the service for which the fee is reimbursed. 

Mr. BLUM. We understand that, in some pockets of the country, 

we are seeing physicians leave the fee-for-service Medicare program, but overall, across the country, participation has remained 

steady. It is something for us to watch very carefully. 

Obviously, if the 25-percent cut were to go into effect, we would 

have a much different situation, but to date, for the key access 

measures that we look at, we have not seen significant changes 

across the country. But there are some pockets that we are concerned about. 

Senator ISAKSON. Well, I very much want to fix the SGR, and I 

think the 4- to 5-year period of time probably is a realistic evaluation time. I commend you on referring to coordinated care. Senator 

Wyden and I worked extensively on some legislation we are preparing for CMS and for Medicare that focuses on reimbursement 

for coordination of care for seniors on Medicare. 

About 72 percent, I am told, of seniors on Medicare have two or 

more chronic conditions for which they are receiving services that 

are reimbursed, most times from different providers, without a coordination of the care, which oftentimes leads to complications and 

higher costs. 

So I think if you can focus on a way to encourage the coordination of care for seniors who have multiple chronic conditions, you 

will probably have a lower cost and a higher quality in terms of 

the delivery of those services to those patients. 

Mr. BLUM. We agree. 

Senator ISAKSON. Good. Thank you, sir. Thank you for your appearance. 

The CHAIRMAN. Thank you, Senator. 

Senator Casey? 

Senator CASEY. Thanks, Mr. Chairman. 

Mr. Blum, thanks for being here again. We appreciate your public service. At your last appearance here you provided testimony, 

and I am not quoting you directly, but when you spoke to the issue 

of reducing both readmissions and hospital-acquired infections, you 

said that we could save as many as 65,000 lives, a fairly substantial assertion. I know you have worked very hard in furtherance of 

that goal. 

22 

I wanted to ask you in particular, and I am noting that, in your 

testimony at the end of page 4, on to page 5, after talking about 

this issue you say, ‘‘CMS has created a new procedure code to recognize the additional resources involved with community physicians coordinating a patient’s care in the 30 days following discharge.’’ 

Then you go on, on page 5, to say, ‘‘The new procedure code establishes a separate payment for care management services that 

account for patient communication and medical decision-making, as 

well as face-to-face visits post-discharge for qualifying beneficiaries.’’ 

I know that is not the only effort you are undertaking, but can 

you address the other efforts you are doing or are undertaking to 

empower physicians and others to reduce hospital readmissions 

and also hospital-acquired conditions? 

Mr. BLUM. Sure. Senator, we continue to see declines in all-cause 

hospital readmissions, and, in the data that I cited back in February, that trend continues to point in the right direction. So it is 

giving us promise that the strategies are working. And whether it 

is in our hospital payment systems and our physician payment systems or other payment systems, we are trying to accomplish what 

Congress really set out to do, to accomplish a couple of things. 

Number one is to make sure that all parts of the health care system have the incentive to talk to each other, to make sure that professionals focus on the care, not just what happens in those four 

walls but after the patient leaves those four walls, like hospital readmission penalties and the value-based purchasing system. 

The other principle is that we want to make sure that physicians 

receive greater payment to provide that complex care management 

that happens to patients between physician office visits. While this 

is an area that the agency in the past has been hesitant to move 

on due to budgetary concerns, we are comfortable moving forward 

now if the system is designed correctly, if we have assurances that 

those physician practices have the capability to provide that complex care management, and that patients who have complex conditions receive those services. 

So we think it is a vitally important step to create greater incentive, greater payments, for that complex management. We know 

that there are parts of the country that do this very well, and we 

want to make sure that we build the payment policies that reinforce them and continue to drive that readmission all-cause rate 

downward, as it is going right now. 

Senator CASEY. Are there any impediments that you see to making greater progress on reducing readmissions in the hospitalacquired infections? Impediments meaning, within the law or otherwise in terms of kind of the real-world implementation of these 

reforms. 

Mr. BLUM. I think we need to create more infrastructure. As Senator Wyden and Senator Grassley discussed, we need more opportunities to share information in a way that is meaningful but also 

protects patient confidentiality. 

One of the things that we really learned working with providers 

is that, when they can see the complete picture, when they can see 

how many different skilled nursing facilities, for example, that 

23 

their patients go to and the relative outcomes from those different 

skilled nursing facilities, it changes behavior. So I think one area 

that we can continue to work together on is how we share that information, share that data, in a way that is meaningful but also 

protects patient confidentiality. 

Senator CASEY. I wanted to raise one quick question at the end 

of my time here. We know the SGR has a tremendous impact on 

physicians and likely an impact on physician recruitment. Maybe, 

because I am running out of time, if you could—we will send you 

a question—the main question I had was about the impact of the 

SGR on physicians, and also physical therapists. I am out of time, 

but maybe you could answer that one in writing. Thank you very 

much. 

The CHAIRMAN. Thank you, Senator. 

Senator Toomey? 

Senator TOOMEY. Thank you, Mr. Chairman. Thank you, Mr. 

Blum, for being with us today. I want to kind of step back for a 

minute, if we could. We have talked a little bit around the edges 

about some of the manifestations of the problems that arise from 

the payment schedules that we developed. 

Senator Isakson mentioned doctors who were refusing to participate in Medicare in some cases. We know there is over-utilization 

of certain services. You mentioned in your testimony at some 

length and talked about the aggressive efforts that you have taken, 

and continue to take, to evaluate misvalued payment codes. 

I understand all that. I guess my question is, to what extent do 

you believe that we are guaranteed to get these payment codes 

wrong probably all the time because we have a committee that decides what a price should be for something? 

I mean, I am reminded of just how complicated this process is, 

coming up with 7,000 different Relative Value Units which assign 

a number for a work component, then a number for a practice expense, then a different number for liability insurance, all of which 

are then adjusted by the Geographic Practice Cost Index, right? 

You have this incredibly complicated formula by which we try to 

establish a price. 

Doesn’t everything we ever learned in economics tell us that committees cannot figure out prices? Markets tell us what prices ought 

to be. So I guess my question is, do you agree that there might be 

a better way to go about this in a very fundamental way, which 

would be to find a way to use price discovery in a competitive setting to determine what we ought to pay, rather than having, admittedly, very smart people spending an awful lot of time doing calculations? 

I mean, I just do not think that the smartest people in the world 

can figure out what my car is worth by a formula, but it is really 

easy to figure it out when you go to try to sell it. Is this not one 

of the fundamental problems we have in trying to establish fee 

schedules? 

Mr. BLUM. I agree with you that the challenge with fee schedules 

is that, when they are set in one given year but then kind of updated over time, they do not always reflect the changes in market 

dynamics, changes in efficiencies, how that service is delivered. 

24 

So we always have to be vigilant to review those fee schedules 

and readjust them to make sure they reflect market realities. I 

know it is controversial, but that is why we felt it was so important 

to move forward with durable medical equipment competitive bidding, because the fee schedules were set back in the 1980s and 

really have not been updated for that market reality. 

The same is true for laboratory services, so we have some 

thoughts, in our proposed rule that came out this week, to change 

that fee schedule based upon a dynamic. So there are areas where 

we can use those competitive principles, those market reality principles. We have to operate within the law, obviously, but we agree 

with you that there are more opportunities for you to use those 

principles. 

Senator TOOMEY. On the hospital side, of course, we have four 

different models of bundled payments. Do you think that using a 

bundled payment approach—of course, you could choose to have a 

committee decide what the bundled payment should be—might 

lend itself somewhat more readily to introduce market pricing for 

services? 

Mr. BLUM. I think the bundled payment model is still a demonstration and is still in its early phases, so we will hopefully learn 

tremendous information. One of the principles that we have followed with the four models is, the hospitals can come forward to 

choose their services and to offer a discount on the current total 

payments. So we are hopeful that these pilots will lead to better 

coordinated payment policy, but they are still an experiment. 

Senator TOOMEY. And then, just very quickly, the last question, 

you mentioned that you do believe, if I understood you correctly, 

that CMS could do more to use market-based price signals to establish payments? Are there any specific reforms that we ought to look 

at on the physician side in particular? 

Mr. BLUM. That is a question I will have to think through and 

get back to you on, but I do believe that we can learn from the experiences of the Part D system, the durable medical supplies, to 

achieve more competitive principles for our payment system. 

Senator TOOMEY. Thank you. 

Thanks, Mr. Chairman. 

The CHAIRMAN. Thank you, Senator. 

Mr. Blum, what about rural providers? Some communities are 

lucky to have a doctor. Maybe they have a physician’s assistant. 

They are quite a ways from a clinic, a hospital, and so forth. So 

how do we implement quality in a rural setting? 

Mr. BLUM. I think we all agree with the principle that beneficiaries should have the same access of care, the same quality of 

care, no matter where they live, in a large urban area or in a frontier area. It is probably true that many of the payment models that 

we have developed and that are being recommended by stakeholders work better in urban communities than rural communities, 

because you need a population that you can manage and that you 

can measure. 

So it might be that the framework that the Congress has created, 

the value modifier, which pays individual physicians based upon 

their relative quality, relative cost, could be the foundation to ensure that we have continued access to physician services in a rural 

25 

area, but still have the incentive for better quality of care and better total cost management. 

So I think there is some infrastructure that has been created 

that can both achieve the goal of preserving access, but also create 

payment structures that are responsive in a rural area. 

The CHAIRMAN. What are some examples of that? 

Mr. BLUM. Well, right now, the value modifier for all physicians 

that is being phased in over time will provide every physician who 

participates in the Medicare program their relative quality and 

their relative resources so they can see how their patients compare 

to patients in similar areas of the country and to care being provided by their peers. The physicians can start to get feedback on 

the relative quality and relative total cost of care. 

This is at its very early stages. We are still phasing it in to large 

physician practices, but it could be the infrastructure that this 

committee continues to build upon for its long-term strategy. 

The CHAIRMAN. So, when you mentioned 4 to 5 years’ transition 

earlier, that would include rural providers, that is, more importantly, rural beneficiaries? 

Mr. BLUM. Sure. Absolutely. I think we always have the visual 

on it to make sure that access is preserved but that we are setting 

equal standards for quality of care throughout the country. 

The CHAIRMAN. Well, thank you very much, Mr. Blum, for your 

hard work. I think you can tell there is a subtext to this committee. 

Everyone, I think, on this committee believes we should move in 

this direction, and I think you will find the enthusiasm here to 

move even more quickly and aggressively. 

You have our support. I want to work with you. Let us know 

what else you need and how we can help, because, clearly, at least 

in my judgment, beneficiaries, our seniors, will be served with successful efforts in this direction. It will also help bring some of the 

costs down in Medicare. I would just urge you to go ahead. Thank 

you very much for your work. Do not forget rural America. 

Mr. BLUM. I will not. I will not. Thank you. 

The CHAIRMAN. Thank you very much. 

The hearing is adjourned. 

[Whereupon, at 11:28 a.m., the hearing was concluded.] 

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A P P E N D I X 

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